Category Archives: Development and Antitrust Law

Competition Law and Economic Development – A Universal Solution?

This is the topic of a conference that will take place in El Salvador next November the 21st and 22nd, which is organized by the antitrust authority (Competition Superintendence). The event features two of the most influential academics on the topic: Prof. Eleanor Fox of NYU and Prof. Michal Gal of the University of Haifa. Other speakers include competition authority officials from South Africa, Kenya, Brazil, and the US; and researchers from the Max Planck Institute for Innovation and Competition in Munich.

As we have tried to report in this blog, many developing countries do not follow a conventional approach to the application of antitrust law. A part of the reason behind this is that the authorities share a feeling that their countries have pressing needs that are different from those in the economies in which competition law originated or where it has a longer track record. My home country shares now the same concerns—for which I sadly can’t take any credit—and is organizing the mentioned event in order to 1) obtain inputs on what adjustments it could make to its policy in order to have a greater impact on economic and social development; and 2) disseminate the ideas of researchers that have worked on topics regarding this general theme.

Given 1), the conference will also include roundtables in which practitioners, academics, and staff of various authorities will participate to refine the policy proposals that can come from the research discussed in the conference.

If you are interested in attending, here is the registration form. The audience so far includes attendants from many corners of the world. I will leave you with the event’s lineup.

Speaker Topic
Eleanor Fox Drafting Competition Law in Developing Countries: What Have We Learned (via Skype)
Michal S. Gal General Characteristics of Developing Economies and their Implications for Competition Law (via Skype)
Mor Bakhoum The Impact of Informal Economy on Competition Dynamics in Developing Countries”
Francisco Beneke Entry Analysis and Competition Law in Latin America: Why does Economic Development Matter?
Russel Pittman Competition Policy for Regulated Industries in Developing Countries
João Paulo de Resende Adapting Competition Law to Brazilian Context and its Contribution to BRICS Discussions
Liberty Mncube Beyond Economic Goals in the Application of Competition Law: South Africa’s Experience”
Raphael Mburu Enforcement of Competition Law in Kenya: A Contrasting Approach



Hipster antitrust

Policy debate has an important rhetoric component. An appealing metaphor can be powerful in swaying the opinion of policy makers and the public (remember trickle-down economics?). That said, there is a recent trend in the US and other parts of the world to depart from certain aspects of conventional antitrust wisdom and some scholars are expressing concerns about how digital markets will look like in the future. Some commentators are calling these new/refurbished ideas and gloomy views of the digital landscape hipster antitrust because they depart from what is deemed to be the mainstream.

To the best of my knowledge, the term started to be used as a twitter hashtag, mostly with a pejorative connotation.  The problem with that, seems to me, is that being a hipster is not necessarily a bad thing and, therefore, the rhetoric trick may not be the best tactic for the defenders of the antitrust status quo.

Let me give you a brief historical timeline, which I think has led us to the use of this term. Back in the 1950s, there was discontent among a small group of academics with how antitrust laws were applied, mainly to single-firm conduct and mergers. These scholars and their ideas gave birth to the most influential school of thought in modern competition law: the Chicago School (CS) of antitrust. In those days, George Stigler and his colleagues were the outcasts who proposed non-mainstream, hipster ideas. Fast forward to the 1980s, and the Chicago School became conventional wisdom. Current antitrust law in the US still reflects a great deal of influence from it. I will not discuss the relative merits and flaws of the CS. I will just point to one common theme in the rhetoric of its proponents. Practitioners and academics who defend CS points of view have always said that they use the economic approach to antitrust.

Since now most of the CS views are mainstream, that formulation is very powerful. It implies that someone who tries to approach antitrust analysis with frameworks other than price theory does not deserve to be called an economist. Now, the rhetoric was freshened up and the advocates of ideas that depart from the mainstream are dismissed as antitrust hipsters. Some are even trying to make #adultantitrust (the opposite of #hipsterantitrust) a thing. This is problematic for one fundamental reason. The way a society is organized in order to produce goods and services depends on a myriad of important factors studied across many fields of the economics profession and other disciplines. Saying that price theory alone holds all the answers is, to put it mildly, myopic.

As I explained in a previous post, an intervention aimed to curtail market power can have detrimental/positive effects on other sources of market failure such as information asymmetries and externalities.[1] Therefore, the improvement of consumer welfare is too narrow a focus of antitrust enforcement policies. The first issue would therefore be to analyze the merits of including a holistic approach to efficiency.

In addition, there is the issue of whether to consider other policy objectives. In the US, Banks were allowed to merge and grow because it was thought that the financial system was going to become more efficient, which might have been true. However, as a result, too-big-to-fail institutions arose from this merger wave, which may have led to the reckless behavior that caused the global financial meltdown that started in 2007. The question in retrospect is whether such factors should have been taken into account by the antitrust authorities. One could say that other public entities are better suited to make such an evaluation of these peculiar issues. Even if that is true, policy makers still have to decide how the balancing of the interests will be carried out. Should financial stability, for instance, take precedence over consumer welfare?

The Chicago School of antitrust succeeded against the backdrop of the deep economic recession in the 1970s, which led to a change in economic thinking and the rise of Margaret Thatcher and Ronald Reagan. It comes, therefore, as little surprise that views of strong (though not blind) faith in market forces have come under attack after the Great Recession, with antitrust being no exception. The potential shift in competition policy could have deep repercussions at the global stage. Many countries in the world look to influential jurisdictions such as the US and the EU for guidance. If the consumer welfare paradigm falters in the former, the push for convergence toward the “economic approach” to antitrust could take a wild turn.

As a final consideration, it is important to keep in mind that each one of the new ideas and views in hipster antitrust analysis deserve their own individual trial. I, for one, do not question the merits of the law on vertical restrictions in the US compared to that in the EU. Another story is that of the relationship between political economy considerations and market dominance, topic on which I have already written before. Therefore, the doom of one hipster idea should not be taken to mean that all hipster points of views are baseless.

[1] See Markowitz, Richard (2014). Economics and the Interpretation and Application of U.S. and E.U. Antitrust Law (Vol. I). United States of America: Springer.

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Interesting links of the week

According to this video on Project Syndicate’s Facebook page, if you want to be a better economist you should read more novels. Stories are better at explaining life than math.

More on the inadequacy of GDP in measuring important aspects of development. Some alternative measures, other than the Human Development Index, include Gross National Happiness (used in the Himalayan Kingdom of Bhutan) and the OECD’s Better Life Index. They have their own problems too.

Fabeook’s project has some detractors. The project enlists websites that people with lower incomes can access through their mobile devices without data charges. The article in the link applauds the purpose of the initiative but takes issue with some features that affect privacy.

How do you measure competition policy’s performance?

Some time ago, I wrote a post about the impact of competition policy on economic growth. I argued that it was an important question since competition authorities in developing countries have to struggle with where to assign financial resources and that they should do so based on the the potential of policies in solving the population’s more urgent problems (extreme poverty, for example). The conclusion was that, so far, there is no consensus on the effects of the policy on GDP growth, in part because differences in quality and performance of antitrust agencies is hard to measure.

In addition to the arguments in the mentioned post, there is an important issue that I did not address but that I came upon in a lecture given at the Munich’s Antitrust Law Forum (Münchner Kartellrechtsforum) by Prof. Richard S. Markovitz of the University of Texas. One of his points was that it is a mistake to focus competition policy on consumer welfare and his arguments were, surprisingly, very much grounded on neoclassical economics. His point, I find, is quite compelling. Market failures come not only in the form of market power but also externalities, information assymetries, and underprovision of public goods. Prof. Markovitz explained that there is no theoretical nor empirical support for assuming that a state intervention that reduces market power will be neutral in terms of the other sources of inefficiencies and that the effects on these can very well be negative.

The point can be illustrated with an example. If an antitrust agency uncovers a cartel in the munfacturing of cigarettes and manages to make the firms compete more aggressively in price, the negative externality that smokers impose on other people will increase and the net effect on efficiency will be ambiguous.

Another example with information assymetries can be the following. Higher margins may allow firms to invest more in advertising that, among other things, increases consumer awareness of different product traits. An antitrust intervention that reduces the market power of firms (say, by blocking a merger) will not necessarilly enhance consumer welfare since search costs will increase if firms start spendig less money on advertising.

The result is that even if competition policy in a given country succeeds in curtailing market power, its effects on efficiency and economic growth will not necessarily be positive. Since the net effects are in theory ambiguous, the matter is an empirical one. However, we go back to our first problem, which is how does one measure differences in the policy’s performance.

Last week, I read an interesting post based on research regarding the measurment of the deterrence effects of antitrust law. My first impression when reading the title was of wonder. One has to get creative in order to measure something that you can not see. However, the research mentioned in the post found a way by exploiting data on 500 legal and illegal cartels and their overcharges. This information allowed them to run simulations and provide conservative and upper-bound estimates. For more information on the research you can check out the post in question. The point I wanted to make is that if you can capture differences in deterrence effects across countries or through time, the data could serve to have a more appropriate measure to plot against other variables such as investment rate and GDP growth.

The authors themselves advise for further research on the topic. However, it might be that we are finally approaching a satisfactory measure of competition policy’s performance.


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Some interesting research in South Africa on competition law

The Economic Society of South Africa will hold its biennial conference starting on next Wednesday (30th of August). It will be a three-day event and competition policy presentations will be featured on Thursday. Even for our non-South African audience, we thought it a good idea to share with you the relevant parts of the program, as they include interesting research of which it is useful to be aware.

The talks on antitrust-related subjects include:

  • Oluwatobi Ogundele and Melissa Naidoo, Institutional mechanisms (IMs) for successful competition policy design and implementation in developing countries
  • Keabetswe Mojapelo, Testing For Structural Changes In Prices Due To Competition Policy Intervention: A Bai-Perron Approach
  • Joseph Akande, Does Competition reduce Stability? SFA and GMM Application to SSA Commercial Banks.
  • Willem Boshoff and Rossouw van Jaarsveld, Analysing Cartel Episodes: A Markov-Switching Application
  • Anmar Pretorius, Ewert Kleynhans and Reghard van Niekerk, The determinants of concentration in the South African manufacturing industry
  • Tapera G. Muzata, Overcharges and cartel deterrence in multi-product collusion
  • Albertus van Niekerk and Nicola Theron, Impact of competition enforcement in the cement industry in South Africa

We hope this information is of use.



The relationship between antitrust and equitable growth

By Francisco Beneke*

The title of this post describes, according to the Washington Center for Equitable Growth, an under-researched area of economic policy. Therefore, the Center is opening a conversation on the subject “through a series of essays, reports, and future events that lay the groundwork for debate and informed solutions”.

The latest publication is “A communications oligopoly on steroids: Why antitrust enforcement and regulatory oversight in digital communications matter“. I highly recommend that you check it out as well as the other publications that can be found under the series entitled “Making antitrust work in the 21st century“. Commentary on each publication to follow.

*Co-editor, Developing World Antitrust

Why We Need Antitrust Law to Work: Some Thoughts on South Africa and El Salvador

By Francisco Beneke*

South Africans appear to be enraged by the prospect of having had to pay a higher price for cancer drugs. The Competition Commission of South Africa is currently undertaking three separate investigations on excessive pricing by three drug manufacturers: Aspen, Pfizer, and Roche. In El Salvador, the final word from the Supreme Court is finally out on the proceedings regarding a cartel of two wheat flour producers who conspired to raise the price of this product. In these two countries, which have a relatively high poverty rate (as defined by local authorities), antitrust cases that involve access to health and nutrition have an extra component that makes them special. Indeed, cases like this have the potential of generating social unrest. Why? The image of a cancer patient who cannot afford a needed drug or a malnourished child evokes a feeling that other cases do not.

Before going any further, one distinction between the situations in the two countries has to be made. In South Africa, we are talking about three ongoing investigations where guilt has not been yet established, while in El Salvador, the case that concerns us has already been decided. The two flour producers were found guilty and rightfully so. The case is the only instance where the Salvadoran authority has conducted a dawn raid, in which it found conclusive evidence of the agreement to allocate market shares. The point of this article is not to advance a judgment in the case of the South African investigations but to point out why a correct competition law enforcement policy is crucial in developing countries. Cartels and abusive dominant firms can be extra harmful in the sense that poor consumers do not simply forgo a part of their welfare but the harm extends to their daily struggle to survive.

I have picked these two examples as the basis of this post because they are recent developments. However, we can find similar situations in other countries in the past. When the farmacies cartel was uncovered in Chile, the population was so enraged by having had to pay more for their medicines that protests erupted and all of this served as a catalyst for reforms that strengthened the Chilean competition authorities.

Developing countries have a particular need for a working competition policy. They do not only have to ensure markets that promote productivity growth but also protect consumers in vulnerable situations. As a consequence, it is important to ensure that the deterrence effects are maximized in markets strategic to this purpose. I say this because it is a common problem in developing countries that competition authorities are underfunded and understaffed. As a result, their investigation and case-resolution capabilities are limited, which decreases the expectation of companies of being caught and punished for competition law infringements. In such a situation, the authority can nevertheless create such an expectation in important industries––for example, health and food products––by focusing its scarce resources on this industries. The deterrence effect of antitrust will not work in the whole economy but at least in an essential part.

The case of El Salvador also shows an important area where the advocacy efforts of the authority should be directed: judicial efficiency. The wheat flour cartel case spent almost nine years under judicial review after the date of the Competition Superintendence’s decision. Such prolonged court battles significantly hamper the deterrence effects of the competition law since the final payment of the fine and, perhaps more importantly, the enforceability of the injunction is postponed. Therefore, the companies can significantly discount the potential losses of an adverse judgment (though they have to pay substantial litigation costs, which nevertheless shows the value they place on delaying the final judgment). In addition, the lengthy proceedings tie up important personnel of the antitrust authority, which affects its enforcement activities.

Competition policy in developing countries faces more difficulties than in developed economies. But more is at stake. It is important that the policies achieve maturity and gain sufficient importance in the eyes of the public so that their funding can become a priority and the authorities can have a better chance of achieving their purpose.

*Co-editor, Developing World Antitrust


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Concrete Antitrust Economics

By Francisco Beneke*

Last week I read a book called Concrete Economics by two Berkeley professors, Stephen Cohen and Bradford DeLong. The general theme of the book is simple and straightforward: economic policy redesign throughout US history has been successful to the extent that it has been pragmatic, not based on abstract theories of how markets behave but on concrete thinking of what the economy needed. The authors argue that it had been that way until the last redesign of the 1980s when ideology prevailed and nobody had a good idea about the supposed benefits of moving the US away from manufacturing and toward what were believed to be higher value-added activities (finance, insurance, and real estate).

The point applies to the debate on some issues in antitrust analysis. Competition policy can take many shapes within the same country during different periods of times, as in the US, and also differ to a significant degree across important jurisdictions––say, the EU, US and China. The discussion of what is the right approach turns sometimes ideological. Take the debate surrounding digital markets for example. Some people advocate for a loose stance on big tech companies because of the fragility of their position. Google’s competition is one click away and Facebook took the field that was already dominated by other social networks. We can describe a position to be ideological if it’s based on a myopic view of the facts. What about the companies’ jaw-dropping share in online-advertising or the fact that true challengers only appear to succeed in certain niche markets? (think of the success of Snapchat with teenagers in the US). Some commentators like to oversimplify the discussion and throw general arguments such as that intervention dampens innovation. If only things were so simple. The question we should ask is which specific type of intervention we are talking about in order to make an educated guess on the effects we may expect to see.

Another topic on which the debate is highly ideological concerns my main area of research: do we need to adjust competition policy and analysis to the different characteristics and needs of developing countries? A big point of the discussion is about keeping consumer welfare as the north of the compass and ditch other considerations that would make antitrust an instrument of industrial policy. There are good points on both sides, and I must confess that my own research does not depart from the consumer welfare paradigm. What is certainly true is that purists, as professor Ariel Ezrachi calls them, claim a higher intellectual ground. Theirs is the economic approach. In that way, the debate turns ideological too.

There are good questions to ask around the purpose of competition policy in countries ridden with poverty and weak institutions. They are not populist and they are grounded in economic concepts. The desirability of focusing on consumer welfare rests on assumptions that look shaky, to say the least, in the case of developing countries. One such assumption is the flexibility of the workforce. If imports take a market by storm, the displaced workers will have a harder time being relocated to new activities because of their lower average education and skills development. Does that mean that developing countries should close their borders to imports? The point of this post and the book I read is that this is the wrong question to ask. It sounds ideological, not concrete because it is formulated too generally.

Concrete Economics has some important lessons for moving away from this ideology trap. First, in applying the book’s approach to tech markets or adjusting competition policy to unique economic and social contexts requires us to borrow some techniques from the medical profession. We can’t prescribe a treatment without a diagnosis (a point advocated by Jeffrey Sachs in his book “The End of Poverty: Economic Possibilities of Our Time”). That means not only compiling information but the right kind of it. Second, we have to paint a clear picture of the results that we are aiming for––in the authors’ words, what you see is what you get. And third, Cohen and DeLong favor a pragmatic approach of trying the policies that seem to have the best chance of succeeding, observing their results, ditching what does not work and keeping what does. This is what they argue happened during Franklin Roosevelt’s administration amid the Great Depression.

Granted, all of this is easier said than done, but worth the effort. A good start is asking the right questions. In the case of developing countries, for example, an important one is the following: what are the most pressing matters for the well being of the population and on which competition policy can make a significant contribution? Poor countries have an urgent need of education reform, but it is hard for me to picture a way in which antitrust can have a significant impact on the subject. On the other hand, vital infrastructure such as energy and telecommunications have important competition components that determine their coverage rate. Finally, we should come up with good evaluation methods––a practice that is scarce in competition policy––to be able to see what works and what doesn’t. As Cohen and DeLong admit, no one has the right formula, but that does not mean that we should not do anything.

Co-editor, Developing World Antitrust

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Regional integration and antitrust policy: Bigger markets are harder to threat

By Francisco Beneke*

I was talking to a friend at the Max Planck Institute for Innovation and Competition with whom I share an office, and he pointed out to me a risk to which antitrust authorities in developing countries are exposed and a good way of protecting them from it. His point was simple but brilliant. Let me tell you briefly what our conversation was about.

Haris pointed out to me that in the course of the proceedings, a multinational could subtly (or not so subtly) make the threat that, should it be enjoined from a certain conduct and imposed a fine, it would find it necessary to cease operations in the country in question adducing any business justification, such as unprofitability. Let’s say a pharmaceutical company is being tried for impeding parallel imports in a country where this is perfectly legal. If it were enjoined from entering into contractual provisions that make these imports harder in order to sustain a higher price for its medicines, the company may say that it would be forced to leave the market. If operation with the lower price due to competing imports would still be profitable, this hardball tactic could still make sense if the size of the market is so small as to render any effects on global profits negligible. The purpose would be to send a message and actually carrying out the threat would signal that the company means business.

The practical implications could put the antitrust authority in an awkward situation. The central government may not be so happy with losing a source of tax revenue. Workers will certainly not like their sudden unemployment. To make things worse, consumers will lose some of their welfare because of the supply contraction. It is easy to see how the antitrust authority may have more at stake than the multinational corporation.

On the other hand, what if this country suddenly becomes a part of an economic union with a common competition policy? The firm will be enjoined from sustaining price differences that are based solely on its market power and not in different costs in each country (in practice that would translate to the ones it can prove to the authority). Now the threat of leaving would have to involve a bigger market, and if such new market is large enough to offset the benefits of sending a message then the company cannot make a credible commitment to cease operations. It is simply not in its best interest. In short, Haris’ argument was that integration of markets and competition policy protects smaller member countries of such threats.

I am aware that the example raises some other issues, such as the desirability of addressing price discrimination within antitrust proceedings, but the point applies to any kind of anticompetitive behavior too. Less controversially, we could imagine the same kind of threat involving a cartel. Integration is not easy, but there are good reasons to pursue it.

*Co-editor, Developing World Antitrust


Development and Competition: a Useful Tool for Salvadoran Growth

By Flor A. Calvo*

Economic growth and development are highly relevant and important topics in El Salvador: education, health, transportation and security policies all focus on producing better social and economic levels in the country. However, competition law, a policy already present in El Salvador, has been constantly neglected as part of this toolkit for promoting growth and development. The law’s main objective is to “increase economic efficiency and consumer welfare”[1] by eliminating agreements among competitors, abuse of market power or mergers that could damage market competition and harm consumers.

But, how exactly could competition law affect development and growth?

Both theory and empirical research, like Nickell (1996)[2], Aghion (2008)[3] and Buccirossi (2013)[4], indicates that market competition increases productivity among markets and firms, due to the fact that firms that operate in highly competitive markets need to constantly innovate their products and improve their quality. Good examples of this dynamic are food courts: each competitor (food chains) presents their best possible offer in order to attract as many consumers as possible.

Another channel, through which competition affects development, is through the price level offered in each market. The greater the competition in a particular market, the lower the price level it has. Ivaldi (2014)[5] shows that prices in markets where cartels were found were 23% higher compared to the periods prior the establishment of the agreements. This implies that a timely and effective cartel detection ensures that consumers would not have to pay overpriced goods and services.

Also, Gutman & Voigt (2014)[6] analyzed the impact that newly enacted competition laws had on economic growth. They found once competition laws are enacted, they increase economic growth in countries that established them. For developing countries, in particular, economic growth is boosted through an increase in investment levels, both national and foreign investment, among countries with a competition law.

However, the effectiveness of the law to generate competition, and therefore growth, depends not only on its presence, but on the efficacy of its application. This requires coordination among competition authorities and other government institutions in order to punish anticompetitive actions and agents appropriately. Greco et al[7] showed that for Latin American countries, competition law is not enough to increase sustainable growth, but that they need a strong and effective enforcement of the law in order to generate the desired impact.

Although competition law has many limitations, it is a viable option to foster growth and development in El Salvador. Its relevance and inclusion into public policy discussions should be a priority since it is an option that generates positive externalities by increasing productivity, growth and local investment. Cases like South Africa, where competition is at the core of its policies, show how the introduction and strengthening of national competition enhances economic growth and social welfare. Certainly, our country possesses an important tool, one that could boost our economy if applied correctly.

*This article is a translation kindly provided by the author from a post in El Blog de la Competencia. The author holds a bachelor’s degree in economics and a master’s degree in international economics and development, specializing in impact assessment; has worked for international organizations such as FSD and 3ie; and works currently as an economist in the department in charge of the investigations of anticompetitive behavior in the Competition Superintendence of El Salvador.

[1] Art. 1, Competition Law. El Salvador.

[2] Nickell, S. (1996). Competition and Corporate Performance. Journal of Political Economy 104(4), 724-746.

[3] Aghion, P., Braum, M., & Fedderke, J. (2008). Competition and Productivity Growth in South Africa. Economics of Transition, 16(4), 741-768.

[4] Buccirossi, P., Ciari, L., Duso, T., Spagnolo, G., & Vitale, C. (2013). Competition Policy and Productivity Growth: An Empirical Assessment. Review of Economics and Statistics, 95(4), 1324-1336.

[5] Ivaldi, M., Khimich, A., & Jenny, F. (2014). Measuring the Economic Effects of Cartels in Developing Countries

[6] Gutmann, J., Voigt, S. (2014). Lending a Hand to the Invisible Hand? Assessing the Effects of Newly Enacted Competition Laws.

[7] Greco, E., Petrecolla, D., Romero, C., & Martinez, J. Competition Policy and Growth: Evidence from Latin America.

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